LTE is the trigger for greater network sharing

01 марта 2010

While the concept of network sharing has gained support over the past decade, European mobile operators have approached the opportunity with great caution. The central promise of significant capex and opex savings has proved elusive for many that have attempted to construct sharing partnerships, with the merging of 2G legacy networks now considered too complex and costly to attempt.

Even at the 3G level, network sharing has been a difficult road to navigate as the technicalities become mired with the marketing requirements for each operator to differentiate themselves.

Key to a successful partnership, claims Chris Buist of PA Consulting, is the need to establish a set of common goals. "Each operator will have well-established objectives and service levels, and integrating these can present many problems; whereas, when building a new network, it's much easier to align these requirements prior to making any capex investment. Our view is that there'll be significantly more sharing with the deployment of LTE, with the major objective being cost savings."

While there is growing acceptance that LTE deployment could provide the catalyst for significantly more European network sharing, the questions regarding its success remain the same. Although equipment vendors can now supply base stations that support numerous air interfaces and be easily shared between operators, the increasingly thorny problem raises the question: How far back into the network infrastructure should sharing go?

"The more you can share, the greater the cost saving. But this involves a much more detailed agreement, such as detailing service levels including an understanding that, if these service levels differ, who will pay for the extra investment," said Buist. "But with different service levels, deciding who pays what can be quite contentious."

Discussions around services levels and extending sharing into the core network not only raise marketing issues, but huge concerns regarding the potential for subscriber data to become compromised.

A possible solution for this lack of trust is the inclusion of an independent third party, such as Ericsson, Nokia Siemens Networks, Alcatel-Lucent or Huawei, as a managed service provider. Industry observers are becoming increasingly convinced that these vendors will be running the majority of networks around the world within the next few years.

Managed services

However, these managed service providers, or outsourcers, are still largely struggling to make an acceptable level of profit for themselves--and are fighting hard to gain market share, achieve the required scale and transform the networks they already manage.

Also, what must be recognised is that most mobile networks are owned by operators and run fairly efficiently, which makes the business case for outsourcing firms somewhat difficult.

According to Buist, the typical sales approach from the outsourcing firms is to offer operators overall savings of between 10 and 20 per cent. "Given that the outsourcing provider is looking to make a margin of around the same, they will need to cut network costs by 30 to 40 per cent. Understandably, this is a big issue for the managed service providers, and the operators need to believe and trust that these outsourcing firms can run their business effectively at this level of reduced profitability."

Further, the dramatic increases in data traffic, driven by the iPhone and its ilk, could make such business models even more complex. With smartphone shipments forecast to rise significantly this year, the problem of managing a network could become onerous as data revenues further decouple from traffic growth.

However, this traffic upsurge is very likely to come from a relatively small number of city hotspots where smartphone usage is rocketing. Interestingly, PA Consulting maintains that up to 80 per cent of sites in any given network currently have insufficient traffic to achieve payback.

Political issues

Network sharing has suddenly become a high-profile political pawn in the negotiations T-Mobile UK and Orange UK are conducting with the European Commission over their planned merger.

In an effort to avoid the involvement of the UK Office of Fair Trading, the two firms have offered to extend a network sharing deal with 3UK to include 16,000 mast sites across the UK. This offer is based upon the existing T-Mobile UK and 3UK agreement that involves 10,000 sites.

Observers had suggested that T-Mobile UK and Orange UK would have no interest in maintaining their investment called for with the existing agreement, leaving 3UK to wither under a growing capex burden. But the offer, designed to gain prompt approval from the EC, may damage 3UK if the merged operators renege on the network-sharing deal.

The challenges presented by this bold move will be closely watched by everyone within the operator and infrastructure industry for signs of success, or failure.